Renegotiating NAFTA Could Impact E-Commerce, Manufacturing

U.S. Secretary Wilbur discusses NAFTA during a visit to the Bipartisan Policy Institute in May.

U.S. CEOs who have business and trade interests with Mexico or Canada are watching the headlines out of Washington closely, as officials this week kicked off the first round of renegotiations of the North American Free Trade Agreement (NAFTA).

Each of the three nations involved in the agreement, which has been on the books since 1994, have goals for the renegotiated pact, though CEOs in the manufacturing and e-commerce spaces may be paying particularly close attention to the renegotiations, as regulations on those sectors could see changes if the three sides can come to an agreement.

Peter Robinson, president and CEO of the U.S. Council for International Business told Chief Executive that the NAFTA negotiations that started this week provide a valuable opportunity to update an agreement that has been in place for more than two decades.

“Negotiators can do this especially by addressing such issues as digital trade, cross-border data flows, streamlined customs processes, treatment of state-owned enterprises and regulatory coherence,” Robinson says. “But negotiators should preserve those parts of NAFTA that have worked well for U.S. business. These include the investor protection provisions, including a strong investor-state dispute settlement framework. Access to strong ISDS arbitration procedures can be especially important for smaller companies, given their greater vulnerability to costly, protracted legal battles in foreign courts.”

What the U.S. WantsThe U.S. Trade Representative’s Office last month released a document highlighting 100 areas the administration would like to see renegotiated, after President Donald Trump made a campaign issue out of withdrawing from NAFTA, though he backed away from full withdrawal once in office. The Trump administration is primarily looking to lower trade deficits and increase balance and reciprocity between all parties through the renegotiation.

U.S. Trade Representative Robert Lighthizer highlight some key areas for renegotiation in his opening remarks at the meetings this week.

“We need to modernize or create provisions which protect digital trade and services trade, e-commerce, update customs procedures, protect intellectual property, improve energy provisions, enhance transparency rules, and promote science-based agricultural trade,” Lighthizer said. “In each of these areas, hopefully we will develop model provisions that can be used for years ahead and that have the flexibility to adapt to future innovations that we can’t even imagine at this point.”

The current agreement does not address e-commerce regulations that are now key to international trade, so that area will be scrutinized during the renegotiations. CEOs whose businesses rely on international e-commerce are keeping close tabs on any proposed regulations in this area, though no proposed updates have come to light as of yet.

NAFTA’s “rules of origin” also will be a focus for the U.S., and any changes will be of particular interest to North American manufacturing CEOs. U.S. officials are looking to update and strengthen those rules to ensure that the benefits of the agreement go to products genuinely made in the U.S. and North America, and help to incentivize the sourcing of goods and materials from the U.S. and North America.

The U.S. also may look to scrap NAFTA’s Chapter 19, the agreement’s dispute settlement mechanism. Canada strongly supports keeping Chapter 19, where a binational panel of five arbiters make binding decisions on complaints on things such as illegal subsidies and dumping.

What Canada Wants
In addition to maintaining Chapter 19, Canada is looking to create a more progressive NAFTA through the negotiations, though it also is looking to protect provisions in key agricultural areas.

Canada’s Foreign Affairs Minister Chrystia Freeland is hoping to negotiate a new chapter on environmental standards, a new chapter on labor standards, and will be working to protect Canada’s supply-management system for dairy and poultry, which is not currently regulated through NAFTA.

Additional progressive areas that Canada will be looking to negotiate into the next NAFTA agreement include gender rights and indigenous rights, which were included in Canada’s recent trade agreement with countries in the European Union.

“One reason these progressive elements, particularly on the environment and labor, are so important is that they are how we guarantee that the modernized NAFTA not only will be an exemplary free trade deal, it also will be a fair trade deal,” Freeland said in an official statement on the negotiations. “Canadians broadly support free trade. But their enthusiasm wavers when trade agreements put our workers at an unfair disadvantage, because of the high standards we rightly demand. Instead, we must pursue progressive trade agreements that are win-win, helping workers both at home and abroad to enjoy higher wages and better conditions.”

What Mexico Wants
Mexico is largely looking to maintain the status quo through the re-negotiations, as a vast majority of its exports are sent to Canada and the U.S., so NAFTA’s preferential arrangements are key to its economy.

Mexican officials would like to include new regulations on energy, financial services and telecommunications into an updated agreement, as those sectors have been privatized in Mexico since NAFTA took effect and weren’t included in the original agreement.

Mexico also would likely resist any new border tariffs as its Mexican Economy Minister Ildefonso Guajardo recently threatened to relax support for migration and security regulations if new taxes are levied.

While CEOs with strong interest in manufacturing and e-commerce watch for new developments, this first round of meetings aren’t likely to yield new regulations, though they will serve as a jumping-off point.

“I think it’s too soon to have the aspiration of narrowing, on the first day of negotiations, the differences we obviously have,” Guajardo said this week.